India suspends windfall tax on crude oil production

India has reduced to zero the windfall tax rate that was imposed on domestic crude oil production in July, when global energy prices were soaring.

The windfall tax on crude oil production was being charged at 3,500 Indian rupees ($42.5) per tonne prior to its effective suspension on Tuesday.

Oil industry sources leaders opposed the windfall tax on producers as unwarranted, given price volatility and argued that it would deter investments needed to bolster energy security.

Some industry experts had warned that India’s decision to slap a windfall tax on domestic oil production could also possibly diminish the appeal of upcoming licensing rounds.

The Indian government reviews the windfall tax rates and global crude oil price movements on a fortnightly basis.

Windfall taxes were also levied on on exports of aviation turbine fuel (ATF), gasoline and diesel in July

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The taxes have already been waived for ATF and gasoline, while the windfall tax on the export of diesel has now been slashed to 0.5 Indian rupees a litre, the notification stated.

Key beneficiaries

State-owned Oil & Natural Gas Corporation (ONGC) and Oil India Limited, along with Vedanta-owned Cairn Oil & Gas are among the companies expected to see a surge in revenues from the waiving of the windfall tax.

The fiscal boost provided by the windfall tax between introduction and waiver is likely to run to several billion dollars during theIndian financial year, which concluded on 31 March.

Indian Prime Minister Narendra Modi has set out an aim of reducing the nation’s dependence on imported crude by 10% during his madate, and this vision leans heavily on plans for increased domestic production of oil and gas, as well as diversification of energy sources.